The Fuse

Beyond Keystone: Top Energy Security Issues for 2016 (That Candidates Are Likely to Ignore)

by Matt Piotrowski | September 09, 2015

It’s still more than four months until the Iowa caucuses and over a year until the general election, but presidential candidates are campaigning in high gear. They’ve talked immigration, taxes, jobs, social issues, and foreign policy, but critical energy security issues for 2016 have not been on anyone’s radar (except for Sarah Palin commenting that she wants to be Donald Trump’s energy secretary, and abolish the Department of Energy).

Given the inherent volatility of oil prices and how fickle the outlook is for both supply and demand, energy security issues ought to be on everyone’s list of topics for the election, even (or especially) with gasoline prices at their lowest in more than a decade and crude oil imports having fallen by almost 30 percent in the last eight years.

Here’s our take on what the 2016 presidential candidates should be talking about. Of course, despite the importance of these topics, none of the contenders for the Oval Office appear eager to discuss them.

  • Fuel economy standards

New fuel economy standards for passenger vehicles, medium-sized automobiles, and heavy-duty trucks  were mandated in the Energy Independence and Security Act of 2007. President Obama tightened them after taking office, and they will be fully realized by 2025.

Candidates need to be asked if they will commit to keeping the new fuel economy standards in place under the current time frame.

The stricter standards are now getting pushback from automakers that want to delay implementation, as they see consumers switching back to bigger, less-efficient vehicles. In 2017, there will be the mid-term review of the 2025 mandate, and candidates need to be asked if they will commit to keeping the new standards in place under the current time frame. With gasoline consumption back on the rise while prices at the pump are low, continued tightening of fuel economy is vital for keeping the country’s oil demand in check—helping consumers save on fuel costs, and further slicing imports of foreign oil.

  • Incentives to diversify the car fleet

Plug-in hybrids and electric vehicles purchased after 2009 are eligible for a significant purchase incentive in the form of a $7,500 tax credit, but this will be ultimately phased out. Will candidates be willing to continue incentives that encourage consumers to switch from gasoline-powered automobiles to EVs and hybrids? Given the higher up-front price of alternative vehicles and the reluctance of many motorists to try anything new, there needs to be financial enticements for consumers, even though they will experience significant fuel cost savings over the life of the vehicle.

Will candidates be willing to continue incentives that encourage consumers to switch from gasoline-powered automobiles to EVs and hybrids?

The benefits of turning over the car fleet, which takes decades, is enormous—it would provide consumers with more choices, lower and more stable fuel costs in the long run, and limit reliance on petroleum products, which fuel over 90 percent of the transportation sector. Candidates should also be asked if they support expanding the credit to natural gas, hydrogen fuel cell, and other alternative fuel vehicles.

  • Crude oil exports and the Strategic Petroleum Reserve

Emergency stockpiles of crude oil and the virtual ban on crude exports were put in place in the 1970s during a period of scarcity and shortages. But now the U.S., while still reliant on crude oil imports, is producing more oil than refiners can handle, thanks to the shale boom over the past five years. Oil producers say the export ban is harmful to them, and that is the reason prices for U.S. crude oil are under those on the international market. Against this backdrop, policy on crude exports and the Strategic Petroleum Reserve (SPR) need a rethink. However, the solutions are not cut and dried. Some policy makers have floated the idea of selling oil from the SPR to raise money for health care or infrastructure. Candidates need to be quizzed whether such action is sound policy, given that oil prices are still volatile and the SPR will be needed to cushion against unexpected geopolitical and weather-related supply disruptions in the future. The ideal size of the SPR and when the government should open the spigots of the emergency stockpiles are other details candidates should address.

Candidates should articulate their philosophies on crude oil exports and the Strategic Petroleum Reserve.

Similarly, candidates should articulate their philosophies on crude oil exports. With the House and Senate debating a repeal of the ban, candidates need to answer the question whether they support nixing the 40-year-old law. If they are for allowing unrestricted crude exports, they need to be honest with how consumers may or may not be affected. In a similar vein, if a candidate comes out against a repeal of the ban, he or she should note if and under what conditions their administration would grant waivers for exports in order to help producers slim down the country’s crude overhang.

  • Biofuels

Biofuels were supposed to be a panacea for the transportation sector by curing the U.S.’ addiction to oil-based products. Ten years later, no such luck. The most prominent biofuel, corn-based ethanol, has displaced about 10 percent of gasoline demand, thanks to the government mandate put in place in 2007, but it will not make further inroads unless flex-fuel vehicles that run on E85 (automobiles that use 85 percent ethanol) take off with motorists. So far, they are only a niche market, and likely to remain so.

Given that biofuels need government support to become mainstream, will candidates back initiatives that support research, development and economic viability of these fuels?

Second-generation biofuels such as cellulosic ethanol are still in their infancy. Cellulosic biofuels output, in fact, is currently mere fractions of the targets set in the 2007 energy legislation. Given that biofuels need government support to become mainstream, will candidates back initiatives that support research, development and economic viability of these fuels? And will they uphold, reform, or outright repeal the Renewable Fuel Standard?

  • Arctic Drilling

Drilling in the Arctic could become ground zero between environmentalists and the oil and gas industry (now that both sides have become exhausted over the Keystone XL pipeline debate, which is likely to be a major talking point this election cycle).

With some 30 percent of the world’s undiscovered gas and 13 percent of the world’s undiscovered oil in the region, the energy sector’s access to the Arctic will become an even more hotly contested issue in the coming years and decades.

Obama’s decision to give Royal Dutch Shell a green light to drill in the Arctic off the coast of Alaska infuriated his environmental supporters, and also garnered criticism from his former Secretary of State and current Democratic presidential front-runner Hillary Clinton. With some 30 percent of the world’s undiscovered gas and 13 percent of the world’s undiscovered oil in the region, the energy sector’s access to the area will become an even more hotly contested issue in the coming years and decades. Will candidates favor the industry’s goals, in the hope that supply from the region can be brought to market and further bolster domestic supply? Will they side with environmentalists and halt access as an effort to curb climate change and keep a Macondo-like oil spill from occurring in an area that would likely take decades to clean up? Or will they try to thread the needle right down the middle, giving concessions to both sides and aggravate everyone in the process, just like Obama has done?

  • Incentives for wind and solar

In the power sector, the fate of coal and natural gas are clear—coal is a fading industry amid climate initiatives like the Clean Power Plan, while natural gas is on the rise because of an abundance of supply. But what about wind and solar? They remain key parts of providing supply diversity for electricity, along with enhancing the electric grid so it can sustain population growth and increases in EV ownership, but both sectors have needed government subsidies to become economically viable, a major source of contention between liberals and conservatives. Should these subsidies be extended, particularly the Investment Tax Credit for solar power, which has seen its costs drop considerably?